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Kazakh central bank may convert some reserves into yuan

Business Materials 10 May 2011 16:55
Kazakhstan may convert some foreign currency reserves into China's yuan should it be globally recognised as a reserve currency, something which could happen this year, its central bank governor said on Tuesday.
Kazakh central bank may convert some reserves into yuan

Kazakhstan may convert some foreign currency reserves into China's yuan should it be globally recognised as a reserve currency, something which could happen this year, its central bank governor said on Tuesday, Reuters reported.

Grigory Marchenko also forecast that the yuan would soon be used more frequently in trade between Kazakhstan and China, its biggest export market, where the dollar still accounts for "99 percent" of all payments between the neighbouring countries.

"For the yuan to become part of (Kazakhstan's) gold and currency reserves, it must be recognised as a convertible and reserve currency by the world community," Marchenko told a news conference. "We believe that this will happen this year."

"If at a certain moment the International Monetary Fund officially recognises the yuan as a reserve currency ... a pretty large amount (of reserves) can be converted from the dollar into the yuan," the central bank governor said.

He declined to estimate the amount of reserves that could be converted into yuan. Kazakhstan, Central Asia's largest economy and oil producer, had net gold and foreign currency reserves of $36.4 billion on April 30, up from $34.6 billion on March 31.

China, which owns about a quarter of Kazakhstan's crude oil output, became the most lucrative export market for Kazakh commodities last year, accounting for 17 percent of Kazakhstan's total exports in U.S. dollar terms.

Marchenko said that, while the International Monetary Fund had yet to decide on the status of the yuan, the central banks of Kazakhstan and China had reached agreement on currency swap deals.

"If we effectively transit to payments in national currencies among the countries of the customs union with China, then, respectively, demand for the dollar for mutual payments is set to decrease," he said.

He was referring to the creation of a customs union between Russia, Belarus and Kazakhstan.

TENGE BOOST

Less demand for the U.S. currency would signal further appreciation of Kazakhstan's tenge currency, already buoyed this year by high world prices for Kazakh oil and metals.

Marchenko said the central bank was now buying fewer dollars on the domestic market to curb tenge appreciation. Official data show the central bank bought about $1 billion in April, compared with around $6 billion between January and mid-March.

"Accordingly, this means one can hope that the rate will steadily come to a comfortable and balanced level," he said.

"There are already some estimates that this level may be in the neighbourhood of 144.6-144.7 tenge (per dollar)," he said.

The weighted average of the tenge on Tuesday was 145.90 per dollar.

Marchenko said the tenge rate could test other levels, depending on prices for Kazakh commodity exports, on the share of earnings which exporters sell on the domestic market and on demand for the dollar.

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